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October 19, 2012

Pandit’s Exit Means End of ‘Shock and Awe’ Era: Bank Analyst

The heyday of volatility at the big banks could be replaced by a ‘boring’ period, says SNL Financial's Nancy Bush

Former Citigroup CEO Vikram Pandit, who stepped down on Oct. 16. (Photo: AP)

The abrupt departure of Vikram Pandit as CEO of Citigroup (C), as well as the retirement of COO John Havens on Tuesday “shocked all of us in the banking community,” said Nancy Bush of SNL Financial, which sells banking data and news worldwide, on Wednesday.

Still, Bush adds, from her blog on the SNL website, while the shifts appear sudden to outsiders, they should not be viewed as a "disorderly transition."

“Quite the contrary — a disorderly transition would have been one in which there was no new CEO waiting in the wings and in which Citigroup Chairman Michael O'Neill would have had to step into the breach as interim CEO or other temporary arrangements would have been made,” explained the veteran analyst.

Bush gives the example of Brian Moynihan, CEO of Bank of America (BAC), as a chaotic transfer of power, in which “several candidates are entertained but not hired and then the board decides at the last moment that the ‘ideal candidate’ is already in the management structure,” she said.

“I'd venture that Moynihan continues to suffer somewhat from the sloppy and arbitrary nature of his ascendance to the top spot, and Citi's new CEO, Michael Corbat (who looks like he came from banking central casting) will happily have no such burden from the outset of his tenure,” the analyst stressed.

Looking back at Pandit’s history at Citigroup, “I would first point out that he was an ‘accidental CEO.’ ”

After kicking out the “hapless” Chuck Prince when the financial crisis began, the bank “essentially turned to a hedge fund manager without banking experience” into a top executive with “a nightmarish job.”

In his early days as CEO, Citi lost out on a deal with Wachovia to Wells Fargo (WFC). And Pandit had “epic clashes with FDIC head Sheila Bair.” In other words, he “did not move on easily from there to fit into the bank CEO mold,” explains Bush.

More recently, Pandit led an “abortive promise” of a dividend increase to the Citi shareholders, which was reportedly nixed by the Fed. He also saw his pay package rejected by shareholders and Morgan Stanley acquire more of the Smith Barney joint venture.

These issues, along with a lagging share price and “the perceived slow pace of the shrinkage of Citi Holdings,” soon led the board to conclude that an executive with more bank “operational experience” was needed, Bush explains.

Unlike others in the industry, Pandit’s legacy is not that of “a really bad CEO” or of “a visionary and indispensable” top executive, she notes: “Instead, he was a crisis-era fixer who steadied the company and placed it on its present trajectory, and now it's time to move on to the next chapter.”

The leadership transition is a signal that Citigroup's board “finally awoke from its torpor and started listening to the demands of its shareholders,” says Bush. “This is a huge development in a normally complacent industry, and this is sure to be noticed by directors of banks both large and small.”

The analyst also argues that it represents “that the era of crisis has passed and that we have moved into an era that will prize operational skills over strategic ‘vision,’ and we can all thank God for that.”

“The departure of Pandit, while certainly newsworthy, may mark one of the last of the paroxysms of ‘shock and awe’ among the major banks.”

Can investors and observers live with “a banking industry that's not going to blow itself up every seven years or so?” she asks.

The future is likely to mean less volatility, lower dividend growth and so forth, Bush says. “This is all ahead of us now, but I can say that in the wake of the events of the past five years, boring is looking pretty good to me.”

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